Contact:
James Bopp, Jr
812 232-2434
July 24, 2000

"Thousands of state and local candidates, political parties and PACs face a July 31st deadline to file a notice with the IRS or face a draconian federal tax," James Bopp, Jr., General Counsel for the James Madison Center for Free Speech stated today.

This tax is part of a recent campaign finance "reform," authored by Senators John McCain and Joseph Lieberman and signed into law on July 1st by President Clinton, which requires a notice to the IRS and reports on expenditures and contributors for groups claiming tax exemption under § 527 of the Internal Revenue Code which makes tax exempt any "political organization."

In addition, while state and local candidates and political parties are exempt from filing the reports on expenditures and contributors, all state election PACs are not exempt, necessitating the filing of reports with the IRS as well as state election officials. The report requires the disclosure to the IRS of the names of all contributors of $200 or more to the organization and expenditures of $500 or more during the calendar year.

"While the media has focused on the effect that this law has on congressional leadership PACs and issue advocacy 527s, the effect of the law on thousands of state candidates, political parties and PACs has been ignored," said Bopp.

The McCain/Lieberman bill was originally offered in the Senate as an amendment to the Department of Defense authorization bill and subsequently became the basis for HR 4762, which the President signed on July 1, 2000. Under the new law, all political organizations in existence on June 30th must file their notices of intent to be tax exempt under § 527 on or before July 31st or be subjected to taxation on all the contributions to the organization at the highest corporate rate (35%). All political organizations begun after June 30th must file the notice within 24 hours of being formed or be subject to tax. The only two exceptions from the notice requirement are federally registered political committees, and organizations with gross receipts of less than $25,000 for any taxable year.

"What is shocking about this new campaign finance 'reform' is that for the first time, all state and local political parties, state and local candidates, and state election PACs must register with the IRS, in addition to filing reports with state election authorities," said Bopp. "Many will not do so, subjecting them to federal corporate tax - probably from the beginning of the tax year - until the notice is filed."

"The inclusion of thousands of state candidates, parties and PACs was intentional," said Bopp, "because the 'reformers' were targeting the dozen or so congressional leadership PACs. However, in their zeal to cripple the activities of their fellow Congressmen, thousands of candidates, parties and PACs involved in only state elections were caught in the net. The contempt for those involved in only state elections by McCain, Lieberman and the 'reformers' is startling."

The American Society of Association Executives asked the IRS, on July 19, to exempt from the law all political action committees already reporting to state election authorities. According to Bopp, "While we agree that candidates and organizations covered by state election law ought not to have to file reports under federal law, we don't believe that the IRS has to power to grant this blanket exemption. Congress should act."